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Item 7. Management’s Discussion and Analysis

2024-04-03 compared with 2023-03-29 · 29 added, 30 removed, 172 unchanged (26% of the section changed)

36 unchanged sentences

Fiscal 2023 Compared to Fiscal 2022

Net sales for the 52-week fiscal year ended January 28, 2023, increased 3.9% to $1.345 billion from net sales of $1.295 billion for the 52-week fiscal year ended January 29, 2022.

Comparable store net sales for the 52-week fiscal year increased 3.3% from comparable store net sales for the prior year 52-week period ended January 29, 2022.

Total sales growth for the year was the result of a 4.6% increase in the average unit retail and a 0.1% increase in the number of transactions, partially offset by a a 0.8% decrease in the average number of units sold per transaction.

Online sales for the fiscal year increased 4.3% to $230.4 million for the 52-week fiscal year ended January 28, 2023 compared to $220.8 million for the 52-week fiscal year ended January 29, 2022.

Net sales for the 53-week fiscal year ended February 3, 2024, decreased 6.3% to $1.261 billion from net sales of $1.345 billion for the 52-week fiscal year ended January 28, 2023.

Comparable store net sales for the 53-week fiscal year decreased 8.0% from comparable store net sales for the prior year 53-week period ended February 4, 2023.

The reduction in total net sales for the year was the result of a 7.3% decrease in the number of transactions, partially offset by a 1.0% increase in the average unit retail and a 0.2% increase in the average number of units sold per transaction.

Total net sales for the year were impacted by an extra week of sales due to the fact that 2023 was a 53-week fiscal year while 2022 was a 52-week fiscal year.

Online sales for the fiscal year decreased 10.3% to $206.5 million for the 53-week fiscal year ended February 3, 2024 compared to $230.4 million for the 52-week fiscal year ended January 28, 2023.

The Company’s average retail price per piece of merchandise sold increased $0.47, or 1.0%, during fiscal 2023 compared to fiscal 2022.

This $0.47 increase was primarily attributable to the following changes (with their corresponding effect on the overall average price per piece):

a 5.2% increase in average denim price points ($0.95), a 3.0% increase in average knit shirt price points ($0.32), a 5.9% increase in average accessory price points ($0.27), a 6.9% increase in average woven shirt price points ($0.18), a 7.3% increase in average sportswear price points ($0.16), and an increase in average price points for certain other merchandise categories ($0.43);

a 2.2% increase in average denim price points ($0.42), a 5.2% increase in average accessory price points ($0.26), an 8.1% increase in average footwear price points ($0.25), a 2.0% increase in average knit shirt price points ($0.22), and an increase in average price points for certain other merchandise categories ($0.32);

which were partially offset by a shift in the merchandise mix (-$1.00).

These changes are primarily a reflection of merchandise shifts in terms of brands and product styles, fabrics, details, and finishes.

Gross profit after buying, distribution, and occupancy costs increased from $653.0 million in fiscal 2021 to $676.0 million in fiscal 2022.

Gross profit after buying, distribution, and occupancy costs decreased from $676.0 million in fiscal 2022 to $619.1 million in fiscal 2023.

As a percentage of net sales, gross profit was 49.1% in fiscal 2023 compared to 50.3% in fiscal 2022.

The gross margin decrease was the result of a decline in merchandise margins (0.45%, as a percentage of net sales), partially offset by leveraged occupancy, buying, and distribution expenses (0.35%, as a percentage of net sales).

The gross margin decline was the result of deleveraged occupancy, buying, and distribution expenses (1.00%, as a percentage of net sales) along with a decline in merchandise margins (0.20%, as a percentage of net sales).

Merchandise shrinkage was 0.5% of net sales for fiscal 2023 compared to 0.4% of net sales for fiscal 2022.

Selling expenses increased from $266.4 million in fiscal 2021 to $293.9 million in fiscal 2022.

Selling expenses decreased from $293.9 million in fiscal 2022 to $291.0 million in fiscal 2023.

As a percentage of net sales, selling expenses increased from 21.9% in fiscal 2022 to 23.1% in fiscal 2023.

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In total, selling, general, and administrative expenses were 27.6% of net sales for fiscal 2023 compared to 25.9% of net sales for fiscal 2022.

The increase was the result of increases in store labor-related expenses (1.00%, as a percentage of net sales) and certain other expense categories (0.80%, as a percentage of net sales), which were partially offset by a decrease in expense related to incentive compensation accruals (0.40%, as a percentage of net sales).

The increase was the result of increases in store labor-related expenses (1.35%, as a percentage of net sales), general and administrative salary expense (0.30%, as a percentage of net sales), marketing spend (0.25%, as a percentage of net sales), equity compensation expense (0.20%, as a percentage of net sales), and certain other expense categories (0.20%, as a percentage of net sales);

which were partially offset by a decrease in expense related to incentive compensation accruals (0.60%, as a percentage of net sales).

As a result of the above changes, the Company’s income from operations decreased from $328.1 million for fiscal 2022 to $271.1 million for fiscal 2023.

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The Company’s other income is derived primarily from investment income related to the Company’s cash and investments.

Income tax expense as a percentage of pre-tax income was 24.0% in fiscal 2022 and 24.6% in fiscal 2021, bringing net income to $254.6 million in fiscal 2022 versus $254.8 million in fiscal 2021.

Income tax expense as a percentage of pre-tax income was 24.0% for both fiscal 2023 and fiscal 2022, bringing net income to $219.9 million in fiscal 2023 versus $254.6 million in fiscal 2022.

Fiscal 2022 Compared to Fiscal 2021

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LIQUIDITY AND CAPITAL RESOURCES

As of January 28, 2023, the Company had working capital of $197.3 million, including $252.1 million of cash and cash equivalents and $21.0 million of short-term investments.

As of February 3, 2024, the Company had working capital of $222.8 million, including $268.2 million of cash and cash equivalents and $22.2 million of short-term investments.

The Company’s cash receipts are generated from retail sales and from investment income, and the Company's primary ongoing cash requirements are for inventory, payroll, occupancy costs, dividend payments, new store expansion, remodeling, and other capital expenditures.

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Operating cash flow is also impacted by the timing of certain other payments, including rent, income taxes, and annual incentive bonuses.

The reduction in operating cash flow for fiscal 2022 compared to fiscal 2021 is primarily attributable to changes in inventory and accounts payable as the Company built its inventory back to more normalized levels, as well as the payment of incentive bonuses in the first quarter of fiscal 2022 based on the Company's strong financial results in fiscal 2021.

These factors also had a significant impact on operating cash flow compared to fiscal 2020, but were offset by strong increases in both net sales and net income for both fiscal 2022 and fiscal 2021 compared to fiscal 2020.

The increase in operating cash flow for fiscal 2023 compared to fiscal 2022 is primarily attributable to changes in inventory and accounts payable as the Company continued to manage and adjust to changing trends, along with a reduction in income tax payments corresponding to the reduction in net income.

The reduction in operating cash flow compared to fiscal 2021, was attributable to changes in inventory and accounts payable as the Company built inventory back to more normalized levels in 2022 and 2023 in addition to the payment of incentive bonuses in the first quarter of both 2023 and 2022 based on the Company's strong financial results in fiscal 2022 and fiscal 2021.

During fiscal 2023, 2022, and 2021, the Company invested $35.9 million, $29.5 million, and $18.3 million, respectively, in new store construction, store renovation, and store technology upgrades.

The Company spent $0.9 million, $0.8 million, and $2.2 million in fiscal 2022, 2021, and 2020, respectively, in capital expenditures for the corporate offices and distribution facility.

The Company spent $1.4 million, $0.9 million, and $0.8 million in fiscal 2023, 2022, and 2021, respectively, in capital expenditures for the corporate headquarters and distribution facility.

During fiscal 2024, the Company anticipates opening 8 new stores and completing approximately 15-19 store remodels and/or relocations.

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The Company believes that existing cash and cash equivalents, investments, and cash flow from operations will be sufficient to fund current and long-term anticipated capital expenditures and working capital requirements for the next several years.

The Company has had a consistent record of generating positive cash flow each year and, as of January 28, 2023, had total cash and investments of $293.7 million, including $20.6 million of long-term investments.

The Company has had a consistent record of generating positive cash flow each year and, as of February 3, 2024, had total cash and investments of $315.4 million, including $25.0 million of long-term investments.

Future conditions, however, may reduce the availability of funds based upon factors such as a decrease in demand for the Company’s product, change in product mix, competitive factors, and general economic conditions as well as other risks and uncertainties which would reduce the Company’s sales, net profitability, and cash flows.

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There were no borrowings during fiscal 2023, 2022, and 2021.

The Company had no bank borrowings as of January 28, 2023 and was in compliance with the terms and conditions of the line of credit agreement.

The Company had no bank borrowings as of February 3, 2024 and was in compliance with the terms and conditions of the line of credit agreement.

Dividend payments - During fiscal 2023, the Company paid total cash dividends of $196.7 million as follows:

$0.35 per share in each of the four quarters and a special cash dividend of $2.50 per share in the fourth quarter.

During fiscal 2022, the Company paid total cash dividends of $202.9 million as follows:

$0.35 per share in each of the four quarters and a special cash dividend of $2.65 per share in the fourth quarter.

During fiscal 2021, the Company's paid cash dividends of $347.8 million as follows:

$0.33 per share in each of the first three quarters, $0.35 per share in the fourth quarter, and a special cash dividend of $5.65 per share in the fourth quarter.

During fiscal 2020, the Company's Board of Directors suspended the Company's quarterly cash dividends during the first two quarters of the fiscal year as a result of the global COVID-19 pandemic.

During the last two quarters of the fiscal year, the Company paid total cash dividends of $128.5 million as follows:

$0.30 per share in both the third and fourth quarters and also a special cash dividend of $2.00 per share in the fourth quarter.

Stock repurchase plan - The Company did not repurchase any shares of its common stock during fiscal 2022 or fiscal 2021.

During fiscal 2020, the Company repurchased 25,000 shares of its common stock at an average price of $14.83 per share.

As of January 28, 2023, 410,655 shares remained available under the Company's current 1,000,000 share repurchase plan that was approved by the Board of Directors on November 20, 2008.

Stock repurchase plan - The Company did not repurchase any shares of its common stock during fiscal 2023, fiscal 2022, or fiscal 2021.

As of February 3, 2024, 410,655 shares remained available under the Company's current 1,000,000 share repurchase plan that was approved by the Board of Directors on November 20, 2008.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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A current liability for unredeemed gift cards and certificates is recorded at the time the card or certificate is purchased.

The liability recorded for unredeemed gift certificates and gift cards was $16.8 million and $16.5 million as of January 28, 2023 and January 29, 2022, respectively.

The liability recorded for unredeemed gift certificates and gift cards was $16.7 million and $16.8 million as of February 3, 2024 and January 28, 2023, respectively.

Gift card and gift certificate breakage is recognized as revenue in proportion to the redemption pattern of customers by applying an estimated breakage rate.

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Customer returns could potentially exceed the historical average, thus reducing future net sales results and potentially reducing future net earnings.

The accrued liability for reserve for sales returns was $3.0 million as of both January 28, 2023 and January 29, 2022.

The accrued liability for reserve for sales returns was $2.6 million as of February 3, 2024 and $3.0 million as of January 28, 2023.

The Company's Buckle Rewards program allows participating guests to earn points for every qualifying purchase, which (after achievement of certain point thresholds) are redeemable as a discount off a future purchase.

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A liability has been recorded for future rewards based on the Company's estimate of how many earned points will turn into rewards and ultimately be redeemed prior to expiration.

As of January 28, 2023 and January 29, 2022, $10.1 million and $10.6 million was included in "accrued store operating expenses" as a liability for estimated future rewards.

As of February 3, 2024 and January 28, 2023, $10.4 million and $10.1 million was included in accrued store operating expenses as a liability for estimated future rewards.

Effective July 1, 2022, the Company entered into a new five year agreement (the "Agreement") with the Bank, to continue providing guests with PLCC services.

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Such changes in market conditions could negatively impact the sale of markdown inventory, causing further markdowns or inventory obsolescence, resulting in increased cost of goods sold from write-offs and reducing the Company’s net earnings.

The adjustment to inventory for markdowns and/or obsolescence was $6.3 million as of January 28, 2023 and $5.6 million as of January 29, 2022.

The adjustment to inventory for markdowns and/or obsolescence was $9.1 million as of February 3, 2024 and $6.3 million as of January 28, 2023.

Income Taxes .

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Additionally, the Company elected as an accounting policy to exclude short-term leases from the recognition requirements.

Consistent with guidance in the FASB Staff Q&A regarding lease concessions related to the effects of the COVID-19 pandemic, the Company made the election to treat all lease concessions as though the enforceable rights and obligations existed in each contract and, therefore, did not apply the lease modification guidance in ASC 842.

Investments .

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In addition, the commercial obligations and commitments made by the Company are customary transactions which are similar to those of other comparable retail companies.

The following table identifies the material obligations and commitments as of January 28, 2023:

The following table identifies the material obligations and commitments as of February 3, 2024:

Payments Due by Fiscal Year

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There were no bank borrowings during fiscal 2023, 2022, and 2021.

The Company had outstanding letters of credit totaling $3.3 million and $2.7 million as of January 28, 2023 and January 29, 2022, respectively.

The Company had outstanding letters of credit totaling $3.2 million and $3.3 million as of February 3, 2024 and January 28, 2023, respectively.

The Company has no other off-balance sheet arrangements.

RELATED PARTY TRANSACTIONS

Included in "other assets" is a note receivable of $1.4 million as of both January 28, 2023 and January 29, 2022, from a life insurance trust fund controlled by the Company’s Chairman.

Included in other assets is a note receivable of $1.5 million as of February 3, 2024 and $1.4 million as of January 28, 2023, from a life insurance trust fund controlled by the Company’s Chairman.

The note was created over three years, beginning in July 1994, when the Company paid life insurance premiums of $0.2 million each year for the Chairman on a personal policy.

13 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis